'Pay to Delay' Generic Drug Case Needs Further Review, Court Says

A federal appeals court on Thursday upheld the legality of Bayer AG to pay a potential generic competitor, Barr Pharmaceuticals, to delay introduction of Cipro, a popular antibiotic. But, in an unusual move, the court said that the issue—better known as "pay to delay"—needs additional court review because of the "exceptional importance" of antitrust implications in the case.

In the case, the U.S. Second Circuit Court of Appeals said that its hands were tied on the issue by a previous ruling on the drug Tamoxifen. However, the court "invited" the plaintiffs in the case (including retail pharmacies CVS and Rite Aid) to petition for a rehearing by the full appeals court.

It was news met with enthusiasm by Federal Trade Commission (FTC), which said in a report earlier this year that "pay for delay" of generic medications had cost American consumers $3.5 billion annually in higher drug prices. "This is further evidence that courts are rethinking their approach to pay for delay settlements," said FTC Chairman Jon Leibowitz in a statement Thursday.

"Hopefully, the courts will put an end to these deals. In the meantime, the FTC will continue to explain, in court and in the halls of Congress, why these sweetheart deals for drug companies are such a bad deal for American consumers and taxpayers," Leibowitz added.

Restrictions on "pay to delay" were included in the House healthcare reform bill and in President Obama's healthcare reform proposal. However, it was not included in the final Senate bill—and subsequent healthcare reform law—passed last month.

During the Bush Administration, the Department of Justice had supported the pay to delay idea—saying these settlements were allowed "within the scope of the patents." However, in a reversal, DOJ said last year in a court filing that similar drug patent settlements should be presumed unlawful.

In Thursday's ruling, the court cited the DOJ brief as a reason for revisiting the antitrust issue. The court also cited as a reason to revisit the issue remarks from Sen. Orrin Hatch (R UT)—co-author of the congressional law addressing drug patents and generics—who called "these types of reverse payments . . . appalling."

Democratic leaders in Washington plan to spend the next week doing what they all but refused to do in the 2010 midterm elections: mount a vigorous defense of President Obama's health care legislation. The...